Tori Company uses the FIFO method in its process costing system. The first proce
ID: 2600191 • Letter: T
Question
Tori Company uses the FIFO method in its process costing system.
The first processing department, the Soldering Department, started the month with 34,000 units in its beginning work-in-process inventory that were 70% complete with respect to conversion costs.
The conversion cost in this beginning work-in-process inventory was $118,150. An additional 86,700 units were started into production during the month.
There were 40,000 units in the ending work-in-process inventory of the Soldering Department that were 80% complete with respect to conversion costs.
A total of $582,125 in conversion costs were incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs?
Explanation / Answer
Lets take 70% units were complete out of 34000 units and the remaining were incomplete for which cost of conversion was $118150.
Therefore, 30% of 34000 units = 10200 units
Cost of Conversion of 10200 units = $118150
Out of new units i.e. 86700 which entered the production during the month 46700 units were 100% complete and let us take out of 40000 units 80% were complete.
46700 + 80% of 40000 = 46700+32000 = 78700 units
Total cost of conversion during the month = $582125
Total cost for opening inventory = $118150
Total cost for conversion for goods entered into production during the month i.e. for 78700 units = 582125-118150 = $463975
Therefore, cost per equivalent unit for conversion costs = (118150/10200) + (463975/78700)
= 11.583 + 5.895 = 17.478 per unit
= $17.5 (rounded off) per unit